Report: Estonian companies' competitiveness key to economic growth path

Euro banknotes on display at the Bank of Estonia.
Euro banknotes on display at the Bank of Estonia. Source: Siim Lõvi/ERR

The key factor in keeping the Estonian economy on its path of growth is the competitiveness of Estonian companies in Europe and on the global market, the Bank of Estonia concluded in its latest Competitiveness Report.

Estonia's market share increased substantially as the COVID-19 pandemic ended, but the growth in the market share of Estonian exports halted last year, causing a general rise in prices and costs throughout the economy, Bank of Estonia economist Mari Rell said Wednesday according to a press release.

Estonian exporters were less able last year to set their sales prices, and uncertainty and a lack of demand meant that companies could not pass higher commodities prices on to the end prices of their products. This was expressed in weaker goods exports last year. By the end of 2022, manufacturing companies' assessments of their own competitiveness on foreign markets had fallen to a lower level than seen even during the global financial crisis in 2008.

Exports of services remained strong last year, however.

Higher energy prices have affected the performance of Estonian exporters more than they affected businesses in other EU countries on average. The Estonian economy is very energy intensive, and so higher fuel prices have a broader impact and affect the competitiveness of the entire economy.

Estonia is one of the countries where support measures for businesses aimed at easing the impact of the energy crisis were modest, even though the rise in the producer prices of domestic energy producers as well as in the consumer prices of electricity, gas and other fuels started notably earlier in Estonia than in other EU countries, and was notably larger as well.

Estonia's competitive position still remained quite stable last year in international comparison. Comparative indexes for various aspects of competitiveness generally put Estonia in a high position compared with other EU countries in Eastern Europe. The biggest climbs in indexes took place a couple of decades ago; Estonia's position has generally held steady in more recent years.

Estonia commands a high position in the Human Freedom Index rankings, however innovation indexes place it within the group of moderate innovators, leaving room for improvement and advancement therein.

Estonia has lower levels of deployment of environment-related technologies, resource productivity and capacity for business and product development than in comparative countries, while government support for business research and development (R&D) and business expenditures on R&D are both low.

Environmental innovation by Estonian companies has mainly been driven by the desire to improve the company's reputation, by high energy, water and materials costs as well as by obligations under environmental legislation, Rell highlighted. The central bank's competitiveness analysis found that one in ten companies in Estonia was involved in environmental innovation either to improve their reputation or to manage their costs.

Companies find that environmental regulations that make them work harder at increasing environmental innovation are also important, and policy and costs are the most important drivers of environmental innovation in other EU countries as well. Environmental innovation is also supported by voluntary activities and pressure from demand, which often go hand in hand with official regulation, especially in services.


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Editor: Aili Vahtla

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